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Jury Finds U. of Phoenix Parent Company Liable for $280-Million
by —Goldie Blumenstyk
A federal jury in Arizona today found the Apollo Group guilty of misleading investors. It ordered Apollo, the parent company of the University of Phoenix, to repay the shareholders about $280-million.
The jury, which deliberated for two days following a two-month civil trial, concluded that Apollo executives had misled stockholders when they withheld a scathing 2004 report by the U.S. Department of Education that criticized the aggressive recruiting practices of the company’s flagship University of Phoenix.
Once the information became public, the price of Apollo stock plummeted.
During the trial, Apollo argued that the report was largely false and based on anecdotal evidence. Therefore, the company said, its failure to disclose its existence to investors had not been misleading.
Lawyers for the plaintiffs argued otherwise. “Any reasonable investor, I assure you, would have wanted to know the existence of this report,” Stephen R. Basser, a lawyer representing shareholders with the policemen’s annuity-and-benefit fund of Chicago, told jurors last week in closing arguments, according to the Associated Press.
Apollo’s lawyer, in a written statement issued after the verdict, said the company disagreed with the jury’s finding and the amount of damages. “The law does not require the disclosure of preliminary or unproven charges in a government investigation,” said the lawyer, Wayne W. Smith. “In not disclosing the report at issue, Apollo acted in good faith and in the best interests of its students, alumni, employees, and shareholders, who could have been unfairly harmed by a premature disclosure.”
The company, with annual revenues of more than $2.8-billion, said it was “evaluating its options for appeal.”
The Education Department report centered on recruiting practices at the University of Phoenix, some of the same issues that are the basis for a separate False Claims Act lawsuit filed against Apollo by two former admissions officers.
The former admissions officers contend the university falsely certified that it was complying with all federal guidelines when it applied for Pell Grants and other federal funds. The officers argue that the university was not complying because of how it paid its admissions recruiters. They are seeking $1.5-billion in damages. Apollo has argued that the settlement it reached with the Department of Education in 2004 resolved any claims that the U.S. government might have. The admissions officers say that that settlement specifically stated that it did not resolve any possible claims under the False Claims Act.
Despite its efforts to have the case dismissed, including an unsuccessful appeal to the U.S. Supreme Court in April, the lawsuit is slated for trial in September 2009.
— Goldie Blumenstyk
Chronicle of Higher Education
2008-01-16
INDEX OF OUTRAGES
Pages: 380
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